Bankinter | Nippon Steel agrees to buy US Steel for $14.1bn ($55/share). The deal contemplates a cash payment of $14.1bn ($55/share), a 40% premium to US Steel’s closing price last Friday and 142% over August this year, when Cleveland Cliff announced a first offer (at $35/share). The valuation including debt amounts to $14.9 billion. The combined company will be the world’s second largest producer with 88M tn (66MTn NSC and 22.4MTn US Steel), which brings Nippon Steel Corp’s (NSC) target of 100MTn closer. The deal has been unanimously approved by both boards (NSC and US Steel) and is pending shareholder and regulatory approvals. The companies expect the deal to close in the second or third quarter of 2024. Link to joint statement on the deal.
Assessment: the deal implies a valuation of about 7.0x EV/EBITDA 2023e vs. 5.8x EV/EBITDA of NSC and 5.9x industry average (according to Bloomberg data). US Steel shares reacted with a 26% rise and are 10% below the offer price, with the approval process still pending. The United Steelworkers union has urged regulators to review the deal. Nippon Steel shares were down -2.81% yesterday in the face of the premium offered. The deal is a much higher valuation than US Steel rejected last summer, Cleveland Cliffs’ $7.3 billion offer (which was already a 40% premium to the share price at the time), then also rejecting Esmark’s $7.8 billion offer. NSC increases its crude steel production capacity by 33% (22MTn) and its international presence, in particular in the US, at a time when the American steel sector could benefit from the infrastructure investment. The sector reacted with rises in Cleveland Cliffs +9.63% (20.5$/share) and ArcelorMittal +5.3% (26.28€/share) due to the interest shown in the potential of the American market, the multiples implicit in the operation and the elimination of the risk of corporate operations.
